OPEC+ unlikely to ride to the rescue anytime soon

Despite falling short of its targeted increase in output once again in October, we think OPEC+ will continue to snub calls to raise output more rapidly. The week began with comments from the Biden Administration that OPEC+ was imperilling the global economic recovery by sticking to its existing output plan, and that it was considering a release of stocks from its strategic reserve to stem the rise in domestic fuel prices and put pressure on the group to change course. But the reality is that OPEC+ can afford to drag its feet for now. That’s because, whereas in the past when the group would have worried about a loss of market share, other non-OPEC+ producers (most notably in the US) are also struggling to raise output. As a result, we continue to expect oil prices to trend broadly sideways between now and the end of the year.
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Commodities Weekly Wrap

Deteriorating risk appetite adds to price headwinds

Despite falls in the prices of most other risky assets, including equities, commodities held up well this week. The prices of equities and commodities tracked each other relatively closely throughout the pandemic, but they have diverged sharply since the start of 2022, with commodities continuing to make gains. However, we expect commodity prices to ease back over the course of the year on the back of slower growth in economic activity and improved supply. Looking ahead to next week, the main event will be the Fed meeting on Tuesday. We expect the Fed to issue a more hawkish statement, which could well include an explicit hint that the first interest rate hike will come in March. This should weigh on commodity prices, although arguably it is already priced into market expectations. Fed tightening is one of the factors feeding into our forecasts, which we will flesh out in more detail in our forthcoming Commodities Overview, Energy and Metals Outlooks.

21 January 2022

Commodities Weekly Wrap

A good start to a bad year for commodity prices

Most commodity prices increased this week, with coal prices leading the pack on the back of Indonesia’s ban on coal exports this month. That said, we don’t see commodity prices rising for much longer. Indeed, Chinese imports of most raw materials fell back in December, with an especially sharp decline in imports of industrial metals. We think this is a sign of things to come in 2022. Weaker Chinese growth is one of the main reasons why we expect most prices to fall this year. Looking ahead, prices of energy and energy-intensive commodities could well be swayed by tensions between Russia and Ukraine and its allies. If tensions continue to build, this could lead to sharp swings in the price of European natural gas in particular. High gas prices in Europe have already led to the curbing of some energy-intensive metals production, including aluminium and zinc. On the data front, China will release Q4 GDP figures on Monday, which we expect to show weaker y/y growth. OPEC will also publish its December oil supply numbers on Tuesday. We expect another month of below-target output.

14 January 2022

Commodities Update

Prices to come off the boil in 2022

After a stellar run in 2020-21, we expect the prices of most commodities to ease back this year as economic activity slows, notably in China, and supply bottlenecks start to ease. Drop-In: Neil Shearing will host an online panel of our senior economists to answer your questions and update on macro and markets this Thursday, 13th January (11:00 ET/16:00 GMT). Register for the latest on everything from Omicron to the Fed to our key calls for 2022. Registration here.

13 January 2022

More from Commodities Team

Commodities Weekly Wrap

Commodity prices may have peaked

Most commodity prices fell this week, adding to the sense that the recent rally is close to a peak (if it hasn’t peaked already). Either way, we think energy prices will be falling next year on weaker demand growth and greater supply, contributing to lower commodity prices more broadly. Two stories stood out this week. First, OPEC+ stuck to its existing schedule of production increases, despite growing external pressure to raise output faster. This could force the hand of the Biden administration to release more strategic oil reserves, given its concerns about rising gasoline prices. Second, governments from around the world are discussing how to reduce dependence on fossil fuels at the COP26 summit. One of the UK’s main aims as hosts of the summit is “consigning coal power to history”. In line with that, dozens of countries made new commitments to phase out coal use, although there were notable absences such as China, India and the US. Moreover, the commitments are not binding and many of them are dependent on the receipt of financial aid. Looking ahead, we’ll be watching for any new developments in the last week of COP26. On the data front, we expect that China’s trade data out this Sunday will show strong energy imports in October.

5 November 2021

Energy Outlook

Prices to come off the boil in 2022

Following sizzling rallies in the prices of energy commodities in 2021, we expect prices to ease back in 2022 on the back of lower growth in demand and improved supply. Current high prices will incentivise producers to raise output and will lead to some rebuilding of global stocks by spring 2022, which will allay fears about supply. Of course, the main risk to our forecasts, particularly for natural gas and coal, is unseasonable weather which could keep prices higher for longer.

1 November 2021

Commodities Outlook

Energy supply squeeze to delay decline in prices

Low stocks ahead of winter in the Northern Hemisphere have sent energy prices soaring. In turn, higher energy costs have also constrained the production of other commodities, most notably industrial metals. Energy supply is likely to remain tight for at least the remainder of this year, which is a key reason why we have pushed back our forecasts for a broad-based decline in commodity prices into 2022. By then, once demand for energy has cooled and stocks have been rebuilt, commodity prices are likely to be dragged lower as global economic growth continues to slow. We think that industry and construction activity in China are on the cusp of a particularly deep downturn, which will be a key factor weighing on the prices of industrial metals.

28 October 2021
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